If Fed Minutes Reveal Taper Talk, Keep an Eye on Yields

Jacquelyn Martin/AP
By Patti Domm

Minutes from the Federal Reserve's October meeting could help determine the course of interest rates for the rest of the year.

The minutes, due at 2 p.m. Eastern time Wednesday, will be watched for clues about the Fed's $85-billion-a-month bond-buying program. Some strategists do not expect to see much, if any, discussion of slowing bond purchases, but traders have been handicapping whether the minutes will show more Fed members leaning toward tapering.

The Fed surprised markets with its decision not to taper its quantitative easing program in September, and it is believed spotty economic data coupled with the partial U.S. government shutdown and debt ceiling debate in Washington kept the Fed sidelined in October.

"I think the minutes can move the ball if it was a close call in October," said John Briggs, who heads cross asset strategy at RBS. "If it was a close call, and the economy handled the fiscal issues in stride then that's going to point toward December."

Fed Chairman Ben Bernanke spoke to the National Associations of Business Economists Tuesday evening and repeated that the asset purchases are not on a preset course, noting they depend on the economic outlook. Bernanke also emphasized that the end of QE does not mean higher a Fed funds rate, and he once more emphasized that those policies could be on separate paths.

To reinforce that, he stressed that short-term rates could also remain near zero even after the 6.5 percent threshold on unemployment is crossed. Bernanke said economic progress has been made, but not enough.

"I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery," a dovish Bernanke told the economists.

If the October minutes show Federal Reserve officials were concerned about the longer-term impact of the government shutdown and fiscal debate, and there was no big push by members for tapering, then the November jobs report Dec. 6 will become the next metric for the Fed and also for Fed watchers.

"That's the largest event between now and the [Dec. 17] meeting. I think the minutes can move the ball one way or the other but it won't solidify the decision," Briggs said.

He said yields moved higher Tuesday ahead of the minutes as traders speculated the Fed's release could point to a tapering in December. %VIRTUAL-article-sponsoredlinks%The 10-year Treasury was yielding 2.71 percent late in the day. "I tend to think we're going to be a little higher in here into the [Dec. 6] employment report because people will fear a repeat of more strong data," he said.

MacNeil Curry, chief technical strategist at Bank of America Merrill Lynch (BAC), said the move in rates may be signaling something bigger. "I think we're ultimately headed to the 2.95/3 percent area," he said. Curry said he was looking for a base into 2.669/2.63 percent.

Besides Fed minutes, there is important economic data due before the open. CPI and retail sales are expected at 8:30 a.m. Business inventories and existing home sales will be reported at 10 a.m.

"I think [retail sales] will be telling as to whether the consumer is picking up," said Barry Knapp, head of U.S. equity portfolio strategy at Barclays. He said retailers' comments have been mixed, with Walmart (WMT) negative but Macy's (M) and Home Depot (HD) positive. "It's kind of spotty, but that's what happens at turning points."

Knapp said the retail sales number, forecast to be unchanged, should be a good clue as to how the holiday shopping season could go.

"I think we're going to do better than expected," he said, of holiday sales. "I think the effects of the tax hikes are fading."

Several retailers will report earnings Wednesday, including J.C. Penney (JCP), Lowe's (LOW), Williams-Sonoma (WSM) and Staples (SPLS). Earnings are also expected from Deere (DE), J.M. Smuckers (SJM) and Green Mountain Coffee Roasters (GMCR).

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If Fed Minutes Reveal Taper Talk, Keep an Eye on Yields

Who’s more powerful: the omnipotent head of a corroding but still feisty power or the handcuffed head of the most dominant country in the world? This year’s snapshot of power puts the Russian president on top. Putin has solidified his control over Russia (“dictator” is no longer an outlandish word to ponder) and the global stage. Anyone watching the chess match over Syria has a clear idea of the shift in the power towards Putin. The ex-KGB strongman -- who controls a nuclear-tipped army, a permanent seat on the UN Security Council and some of the world's largest oil and gas reserves -- is allowed to serve two more terms, which could keep him office until 2024.

His signature legislation, Obamacare, is under fire, U.S. allies are outraged over NSA surveillance overseas, and the government shutdown for 16 days in October begs the question: Who's in control here? It appears that President Obama's lame duck period has set in earlier than usual for a two-term president, causing him to drop one notch from the No. 1 spot. To be sure, though, the leader of the free world remains in charge of the most powerful nation in the world, with the largest, most innovative economy and the deadliest military. 

Recently promoted in March, the 60-year-old is the paramount political and military leader of China. Xi exercises near dictatorial control over 1.3 billion people (close to 20% of the world's population). China has the world's largest central bank, with $3.5 trillion in assets -- and owns some $1.3 trillion in U.S. securities, making it the largest foreign shareholder of U.S. debt. Along with India, the country is predicted to overtake the U.S. in aggregate GDP in coming decades; it is currently $8.2 trillion. There are 122 billionaires in the country, up from zero one decade ago. In addition to his title of general secretary of the Communist Party in China, Xi is also president of the People's Republic of China and the chairman of the Central Military Commission.

The world's most powerful woman is the backbone of the 27-member European Union and carries the fate of the euro on her shoulders as Germany's chancellor. Merkel's hard-line austerity prescription for easing the European debt crisis has been challenged by both hard-hit southern countries and the more affluent north, most particularly French President Francois Hollande. Merkel is fresh off a commanding reelection victory, and has served as ­chancellor since 2005; the first woman in the position. Merkel has earned the top spot on the FORBES list of Most Powerful Women In The World for eight of the past 10 years.

Gates is the wealthiest man in the U.S., despite his past gifts of more than $28 billion to the Bill & Melinda Gates Foundation. He bolstered his foundation's efforts to eradicate polio in April, securing $335 million in pledges to the cause from six billionaire comrades, including $100 million each from Mexico's Carlos Slim and New York City Mayor Mike Bloomberg. Shares of Microsoft jumped in late August on news that Steve Ballmer will step down as CEO; Gates will remain chairman of the software company he cofounded with Paul Allen in 1975. He and fellow Most Powerful Warren Buffett have thus far convinced over 100 billionaires to sign on to the Giving Pledge, a promise to donate at least half one's net worth to charity.

Big Ben is stepping down as of Jan. 31, 2014, and Janet Yellen has been nominated to lead the Fed next year. Bernanke has served as chairman during some of the biggest financial challenges since the Depression. The former Princeton professor’s decisive actions and policies helped to avert a global economic meltdown during late 2000s fiscal crisis, and jump-started a still-moderate U.S. recovery. The American economy's "adult in the room" has said that there is only so much the Fed can do; politicians are the ones with the power to keep us from going over a fiscal cliff.

Duke heads the world's No. 1 retailer ($470 billion in revenues in 2012) and biggest private employer (2.2 million employees). Wal-Mart can make or break a company simply by deciding to stock its products. Last year, Sweden's $785 billion-in-assets sovereign wealth fund (none bigger) dropped its Wal-Mart stock -- reportedly worth about $140 billion -- on advice from its Ethical Council that cited a "serious and systematic abuse of workers' rights."

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